US Airways needs to cut extra $1.6 billion annually

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Posted 8:33AM on Wednesday, October 23, 2002

ARLINGTON, Va. - Rising fuel costs and continued weakness in the airline industry require US Airways Group Inc. to trim annual costs by up to $1.6 billion a year - nearly $400 million more than previous estimates - to achieve profitability, airline officials said Tuesday. The bankrupt airline had previously said it needed to reduce its annual costs by $1.2 billion a year to become a profitable venture. But at a meeting of creditors Tuesday, the airline's lead bankruptcy attorney said the figure has risen to $1.4 billion to $1.6 billion. Last year, Arlington, Va.-based US Airways - which operates its busiest hub in Charlotte, N.C. - lost $2.1 billion on revenue of $8.3 billion. Company attorney John W. Butler Jr. told the creditors that the airline already has achieved $1.3 billion in annual savings, mostly by renegotiating labor contracts. US Airways is hoping most of the additional needed savings can be obtained from its aircraft lessors. The bankruptcy filing on Aug. 11 has already given the company significant leverage to reduce the costs of its airplane leases or to break leases on planes it no longer needs. But company officials would not rule out the possibility of more furloughs to help reduce costs. US Airways has promised not to seek additional contract concessions from its labor groups, and airline spokesman Chris Chiames said they will honor that promise. But the contracts don't protect employees from layoffs and furloughs. Instead, the airline has promised to operate at least 245 jets. US Airways now operates 279 jets, so it can reduce its fleet and potentially lay off thousands of workers without violating its union agreements Chiames said no decision has been made to reduce the fleet size below 279, but said it is a possibility. The company employs 35,410 people currently in its mainline operations, spokesman David Castelveter said. Previously announced layoffs will reduce that number by about 2,100 by the end of the year, he said. The company employed 46,000 before the Sept. 11 attacks. About 7,000 workers are in Charlotte, the airline's busiest hub, down from about 8,000 before the attacks. Fuel costs are the airline's second biggest expense, after labor, accounting for anywhere from 10 to 15 percent of the airline's overall expenses. Those costs have climbed steadily in recent months. The average cost for a gallon of jet fuel rose from 61.7 cents in January to 73.3 cents in August, a 19 percent increase, according to the Air Transport Association. In addition, the industry as a whole has yet to recover from its post- Sept. 11 slump, and airlines have been forced to keep fares low to attract customers. "What we've seen is that we've been able to maintain our market share, but that pie is shrinking," Chiames said.